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Asia’s pork worries can have benefits at home

The United States just kicked off summer with one of the biggest grilling holidays of the year — Memorial Day. And while Americans were celebrating the nation’s military sacrifices, a perfect storm of factors across both the Pacific and Atlantic oceans is touching lives in Northeast Mississippi.

Since last year, China, the world’s largest consumer and producer of pork, has been hit by an outbreak of the Asian swine flu. Producers there have culled millions of pigs in an effort to control the spread of the deadly diseaseBut the efforts have not stopped it from spreading in China but also to Vietnam, Cambodia and Thailand, which also are big pork producers.

The deadly disease has even surfaced in Europe, although in only a few cases. The spread has forced countries, including the United States, to increase efforts to keep the bug out. So far, the United States has been successful.

But the shortage of pork worldwide, combined with the current trade war, has driven up pork prices. In fact, the price of an Easter ham in the United States hit more than $4.30 a pound last month, the highest since early 2015.

Meanwhile, soybean prices, one of the largest food stocks for pigs, are down, meaning producers’ costs are lower while prices are higher.

Those worldwide conditions, could benefit Prestage Farms’ operation which employs about 300 people at its West Point plant plus indirectly finances dozens more at farms that help serve the Clay County operation.
For instance, earlier this month, the U.S. Department of Agriculture predicted pork production would continue upwards.

U.S. pork producers are likely to respond to increasing international pork prices brought about by significant Chinese hog losses from African Swine Fever, by raising 2020 U.S pork production 3.5 percent to 28.3 billion pounds, the USDA predicted.

Prices of lean hogs are expected to average more than 10 percent higher than average prices this year. U.S. pork exports are forecast at about 6.7 billion pounds in 2020, almost 7 percent above the 6.2 billion pounds estimated for this year, according to the USDA report.

“We're looking at increased production on the total protein with about a 2% increase in in beef production and nearly a 4% increase in pork production,” said John Nalivka, owner of Sterling Marketing Group who puts out the Sterling Profit Tracker each week, told Pork Magazine earlier this month.

“This will be our fifth consecutive year of record pork production, and this year pork production in the U.S. will actually exceed beef production,” he said.

Much of the consumption hinges on the need for exports. Major companies like Tyson and McDonald's are already warning consumers meat prices could climb, as African Swine Fever (ASF) continues to claim China’s hog herd.

“It may not affect consumers immediately but later on in the year, maybe closer to Labor Day, we could see a lot of upside, a lot of incremental price pressure,” Christine McCracken, executive director, protein analyst at RaboBank AgriFinance, told the Journal last week. “So, while we will have more [supply] available, a big share of that could be headed out, particularly to the Asian market where we’ve seen massive losses tied to disease. I expect products to start moving out here in the very near future.”

China’s agricultural ministry estimated recently that there were 19% fewer hogs in the country in March than a year earlier. Losing that much pork output in the country that is home to half the world’s pigs would cut the global meat supply by 6 percent on an annualized basis, according to Heather Jones, an analyst with investment firm Vertical Group.

“That’s unprecedented,” Ms. Jones said. “There’s just not enough supply out there to replace this.”

U.S. pork producers like Prestage Farms are eager to fill part of that gap, according to the company’s owner, Ron Prestage.

In April, Prestage Farms opened a $309 million pork processing plant in Iowa. According to the Wall Street Journal, last year, the company watched as tariffs from China and Mexico depressed U.S. pork prices, while expansion in the U.S. meat industry drove domestic pork production to a record 26.3 billion pounds.

The picture changed late last year, when Prestage said he began getting calls from Chinese buyers wanting to know when the new Iowa plant, which the West Point facility helps service, might start exporting pork.
The recent surge in pork prices — up 40 percent in the last 2 months —means the Prestage Farms plant likely will make a profit in 2020, he said.

“It’s going to help us get a leg up quicker than we expected,” Prestage told the Wall Street Journal.

Combined, China and Hong Kong bought 495,637 metric tons of U.S. pork in 2017, before tariffs that took effect last year sapped that flow to 351,774 tons in 2018, according to data compiled by the U.S. Meat Export Federation. Now, China’s purchases in the past two weeks alone have totaled 101,200 metric tons, U.S. Department of Agriculture data show, even as the tariffs remain in effect.

China long has purchased U.S. byproducts like feet, hearts and heads, but buyers now are placing orders for entire hog carcasses, U.S. meat-industry officials said.

That shift could drive up prices for U.S. staples like bacon and sausages, analysts said. Since the start of the year, per-pound prices have more than doubled for pork trim, used to make sausage, according to USDA data.
Prices for pork bellies, used for bacon, climbed 21 percent before easing back late last wee, the USDA said.

Those increases have yet to translate to higher prices at restaurants and grocery stores, but consumers could pay more for pork later this year if the hog culling continues, said Christine McCracken, executive director of meat research at Rabobank, a top agricultural lender.

U.S. meatpackers like Smithfield, JBS and Tyson are also spending more to purchase pigs from farmers. U.S. hog farmers in March earned an average $8.47 per pig, their first positive monthly return since October, according to estimates from Iowa State University.

Pam Janssen, whose family sells some 6,000 hogs annually from their farm near Minonk, Ill., told the Farm Journal the higher prices haven’t made up for losses last year when tariffs pushed down prices.
“It’s better than it was, but it’s got a long way to go,” she said.